What should you think about Aswath Damodaran’s view on Adani Enterprises?

Adani group stocks are keeping the Indian share markets busy (REUTERS)
Adani group stocks are keeping the Indian share markets busy (REUTERS)


  • Adani Enterprises shares have around 40% more downside according to this value investor. Hindenburg report not a reason.

Adani group stocks are keeping the Indian share markets busy these days.

Take any stock from the ten listed ones (including NDTV, ACC, and Ambuja) and look at that company’s chart over a two-week period. You’ll be surprised to see how some of the biggest wealth creators of Adani group have fallen back to earth.

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Before this massive crash, which wiped off more than US$100 billion (bn) from Adani group’s marketcap, the performance of group companies was something like this.

Share price taken without factoring in the effect of the Hindenburg report
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Share price taken without factoring in the effect of the Hindenburg report

Spectacular, isn’t it? You must be bamboozled to see the kind of gains they delivered in past two years before the report was released.

All Adani group companies were in focus back then for obvious reasons. Massive gains in such quick period will obviously attract the media and investors.

This time around, Adani stocks are in news for the opposite reasons and have fallen out of investors’ favor.

Much has been written and said about Adani group companies over the past two weeks.

Over the weekend, the group’s flagship firm Adani Enterprises received another blow when valuation guru Aswath Damodaran pegged the company’s valuation at 947.79 per share.

Adani Enterprises currently trades at 1,500 levels, so Damodaran’s valuation calculations predict another 40% drop in the share price.

Please note in his calculations, Damodaran has not factored in the damage that might have been done to the company's reputation and long-term value by the Hindenburg episode.

About Aswath Damodaran

When it comes tovaluations, it's hard to not mention Professor Aswath Damodaran, a foremost authority onvaluations.

Damodaran is a disciple ofintrinsic value investing. He is currently a professor of finance at NYU's Stern School of Business.

Damodaran is widely respected as one of the foremost experts on corporate valuation. He has published several books on equity valuation and corporate finance.

The valuation guru's 'true value' for Adani Enterprises

In his blog published over the weekend, Damodaran said Adani Enterprises could be valued at 945.

Arriving at a fair value of only 947 apiece, he factored in upbeat assumptions on revenue growth and operating margins of Adani Enterprises.

His fair value suggests another 38% drop from its share price.


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In his evaluation, Damodaran analysed the market's valuation of Adani Enterprises by examining the multiples investors have been willing to pay based on various financial metrics, such as earnings, revenues, EBITDA, and book value.

He noted a remarkable increase in the last two years, with the stock's PE ratio soaring from a modest 15 times earnings between 2016-21 to an impressive 214 times earnings.

Similarly, the enterprise value skyrocketed from approximately 12 times EBITDA during 2016-21 to a staggering 53 times EBITDA.

Other Insights on Adani-Hindenburg

Damodaran’s notes also shared other insights on the Adani-Hindenburg tussle.

On Hindenburg's allegations, Damodaran said that the US-based short-seller’s allegations on the Adani group rest on a mix of serious contentions, circumstantial evidence, and questionable claims.

Here’s what he wrote in his blog titled Musings on Markets…

To be able to manipulate and move the market capitalisation of a company by a hundred billion, roughly the increase in value in 2022, you would expect to see huge numbers of shares being traded by these entities, and I don't see that.

The questionable claims are the ones to do with earnings manipulation, since if Adani is manipulating earnings, it is not doing a very good job, reporting low margins and returns.

While we already knew that Adani Enterprises and most other group stocks were overvalued, Damodaran believes that Hindenburg could be “indulging in hyperbole" when it described Adani to be “the biggest con" in history.

Damodaran also pointed out a flaw in global economic system, saying that ESG (environment, social and governance) in the global economic setting is far more deserving of the 'biggest con' label than Gautam Adani.

Equitymaster’s editors on Adani Enterprises

Here's what Aditya Vora, research analyst at Hidden Treasure had to say about Adani Enterprises and other Adani group stocks:

When we talk about the Adani group, let me first list out the group companies along with basic data.

The table below lists out the major Adani group companies and their valuation metrics.

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I have not even considered P/E ratios for some of the companies as they mean nothing when companies like Adani Green, Adani Total Gas, and Adani Transmission have miniscule earnings.

Out of the Adani stable, the only 2 companies which makes sense on valuations and fundamentals are Adani Ports and Ambuja Cements.

Meanwhile, Co-head of Research at Equitymaster Rahul Shah has this to say:

I had done a more in-depth study on the major group companies in apiece I wrote back in June 2021.

Now, it has been 18 months since I wrote that piece. Have any of the Adani group companies managed to put up a performance that would force me to change my view?

I don't think so. Those with weak fundamentals like Adani Power or Adani Green Energy have scarcely managed to improve them while the ones that were expensive like Adani Total Gas or Adani Ports, don't look cheap even after the recent fall.

About Adani Enterprises and its rich history

The company has an interesting history which you probably didn’t know…

Year 1994

Back in 1994, the company came out with its maiden IPO in the name of Adani Exports.

According to the company’s website, Adani Enterprises (erstwhile Adani Exports) listed on BSE and NSE at 150 per share with face value of 10.

In its initial public offering (IPO), the company offered around 12.50 lakh equity shares aggregating 187.5 million (m). The IPO was subscribed by more than 25 times.

Now let’s assume that an investor was allotted 50 shares in the IPO.

Year 1996

Later in 1996, the company announced a bonus issue in the ratio of 1:1.

So the investor holding 50 shares now has 100 shares. (Bonus 1:1 means 50 becomes 100)

Year 1999

Three years later, Adani Enterprises again issued bonus shares in the ratio of 1:1.

So the investor holding 100 shares now has 200 shares. (Bonus 1:1 means 100 becomes 200)

Interestingly, the company did see a phenomenal growth story in the initial years. By the time it announced bonus shares in 1999, the company’s stock had risen 8-fold.


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During this period, the company expanded its trade basket and became the top net foreign exchange earner of India.

The company achieved all time high turnover of 28.5 billion (bn) in fiscal 2000 as against 21.9 bn during fiscal 1999.

Year 2004

In 2004, there was a stock split and changed its face value from 10 to 1. This means the investor, which had 200 shares, now has 2,000.

Year 2009

2009 marked Adani Enterprises’ third bonus issue. The company offered bonus shares in the ratio of 1:1.

As a result, the investor holding 2,000 shares now has 4,000 shares in total.

Year 2015

This was an interesting year for the Adani group. In 2015, Adani Enterprises announced demerger of its ports, power, and transmission business, and this is how other group companies were listed.

Here’s the quantity of shares that Adani Enterprises shareholders were offered:

Adani Ports – For every 100 shares of Adani Enterprises, shareholders received 141 shares of Adani Ports.

Adani Power – For every 100 shares of Adani Enterprises, shareholders received 185 shares of Adani Power.

Adani Transmission – For every 100 shares of Adani Enterprises, shareholders received 100 shares of Adani Transmission.

The investor in our assumption had 4,000 shares in total. So here’s how his portfolio would look like now after he received shares of other group companies.

Adani Enterprises – 4,000 shares

Adani Ports – 5,640 shares

Adani Power – 7,400 shares

Adani Transmission – 4,000 shares

Year 2018

Two more companies were listed in 2018 – Adani Green Energy and Adani Gas.

For every 1,000 shares of Adani Enterprises, investors were allotted 761 fully paid shares of Adani Green Energy.

The investor in our story by this proportion received 3,044 shares of Adani Green Energy.

In late 2018, Adani Gas was listed on the exchanges. As part of the listing process, Adani Gas allotted equity shares to existing shareholders of Adani Enterprises at 1:1 ratio.

So now the investor would also have 4,000 shares of Adani Gas, which now goes by the name of Adani Total Gas, post its partnership with French major TOTAL.

In conclusion…

As we said, the Adani-Hindenburg story is going to keep the markets busy for a long time to come.

In the meantime, you could quickly refer to both fundamentals and valuations of Adani group stocks onEquitymaster's Indian stock screener.

We recently added a new section in the screener where you can view the fundamentals of companies within a business group in one screen. This should help you get a better grip on fundamentals, business group wise.

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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